Ben Bernanke Goes to the Hill for a Q&A on the Federal Deficit
Today is the day Fed Chief Ben Bernanke heads into the House of Representatives for what’s certain to be a very contentious Q&A session with Republican leaders.
Republicans took a majority in the House on promises to deal with the Federal deficit. And they also capitalized on populist resentment about “too big to fail” bailouts during the financial crisis. Bernanke is the bailout poster-child, and today’s session will be the first real opportunity for the House Republicans to show voters just how serious and mad they are.
The main bone of contention will be the Fed’s QE2 stimulus. Those opposed say the $600 billion bond-buying program is spending we can’t afford and will lead to inflation.
I’ve been critical of QE2 as well. QE2 clearly doesn’t solve any systemic problems, and I wonder how the Fed will bring its balance sheet back to normal in the future.
But on the other hand, other than Bernanke, who else in government has acted to help the economy? Congress has been solely focused on elections and re-elections for the last 18 months. And the President only recently reversed his apparent anti-business stance to embrace true growth initiatives. I still say pushing a healthcare bill on a barely recovering economy was a colossal misstep.
If you’re unemployed, recall that many in Congress have tried to kill emergency benefit extensions. And soon the government’s debt ceiling will become an issue. Some in Congress seem to feel that putting government default on the table as leverage is a good idea.
I want to be clear that while getting Federal debt in line is critical, it can’t be done by simply ignoring obligations. That’s akin to simply not paying one’s mortgage because you’re underwater. Someone still gets stuck with the bill and you lose creditworthiness.
*****As far as the Fed’s actions sparking inflation, that may well come to pass in the future. But right now, unemployment is keeping inflation in check. Sure, you can make the argument that inflation is affecting food prices, even though droughts in some areas and floods in others have affected production.
And I reject the notion that oil prices indicate inflation. The simple fact for oil prices is that supply is limited. And the only supply that can increase is unconventional, like oil sands and deepwater. These supplies require a price above $65 or so a barrel to be viable.
Food and energy costs are not higher because of QE2.
*****Sandra W. wrote:
I made money trading Fannie Mae and Freddie in the $1.00 to $2.00 range. Then it dropped and I bought 2 thousand shares of each at .30. It is now moving - up to .83 today-- High of $1.00 last Friday. I sold one thousand share today at .80. Do you have a feel for how high these two might go? If you can advise I'd appreciate it very much!
I’m glad to hear that you made money from these two stocks. And while it’s possible there may be more gains, the reality is that your money is not safe with Fannie and Freddie.
Please understand that both Fannie (FNMA.OB) and Freddie (FMCC.OB) are in receivership. The companies’ assets will be disposed of and they will cease to be. In fact, President Obama is expected to offer a proposal for disbanding Fannie and Freddie in the next few days. You should get out of these stocks immediately.
*****I’m simply amazed at how well auto sales are doing. Ford (NYSE: F) is increasing production by 13%, Toyota (NYSE: TM) and Nissan are raising guidance significantly and GM (NYSE: GM) is even about to pay $3,000 bonuses to 53,000 of its unionized employees.
As much as we still lament the way bank bailouts were handled, I think we should all be thankful that the automakers were bailed out. They seem to be making the most of their second chance.
I’ve had Toyota in the Top Stock Insights portfolio since $73 a share. It’s currently trading at $88.50.
